Employees prioritize 401(k) plans with $1.8M retirement savings goal in mind

Aside from health insurance, a 401(k) plan is the most important benefit people want when looking for a new job. Eighty-eight percent of respondents to a recent Charles Schwab study said an employer-sponsored retirement savings plan is a must-have benefit.

“Placing such a high priority on their 401(k) is not surprising since it is their primary retirement resource, with workers counting on it to deliver 40% of their retirement income,” said Marci Stewart, director of communication consulting and participant education for Schwab Workplace Financial Services. “That’s double what workers expect from the next closest source, which is Social Security at 20% of retirement income.”

On average, survey respondents expect they will need about $1.8 million saved to achieve a comfortable retirement, up slightly from last year’s estimate of $1.7 million. However, confidence in their ability to attain their retirement goals slipped this year from 47% of 401(k) participants indicating they were very likely to meet their goals last year to 37% this year, amid a variety of economic challenges.

According to the annual nationwide survey of 401(k) plan participants, inflation is creating the most obstacles to saving for a comfortable retirement for 401(k) participants, with 62% of survey respondents indicating it was their top concern compared with 45% in 2022. Stock market volatility was also an increasing concern (42% in 2023  vs. 33% in 2022). Keeping up with monthly expenses, managing unexpected expenses and paying off credit card debt all stayed the same from 2022 to 2023, and paying for children’s college expenses was a slightly lower concern this year.

More than three-quarters of respondents said they have been impacted by inflation, market volatility and other recent economic turbulence, and about one-third said this has caused them to save less in general while 18% said they are investing less outside their 401(k). Thirty-six percent said they expect to delay their retirement as a result of current economic challenges. Other ways respondents are dealing with economic uncertainty are reducing purchases, buying cheaper products, paying off debt more slowly, and saving less in an emergency fund.

“When inflation persists for an extended period of time, workers are inevitably going to feel a deeper impact on their wallets,” said Brian Bender, head of Schwab Workplace Financial Services. “While many workers are trying to cut back on spending, some costs are unavoidable and certain areas of their finances have taken a hit. Despite these challenges, retirement saving continues to be a priority for workers, who have maintained their 401(k) savings rates and largely stayed on top of their 401(k) investments over the past year.”

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In addition, more people indicated they are saving in savings accounts this year (68% in 2023 vs. 61% in 2022); investing in an IRA (47% vs. 33%); and investing in a brokerage account (38% vs. 29%). Meanwhile, less people are saving via a Health Spending Account (36% vs. 44%) or investing in cryptocurrency (14% vs. 25%).

Half of respondents have some familiarity with SECURE 2.0 and are most familiar with sections related to required minimum distributions and increased catch-up contributions. The provision they are most interested in learning about, however, is government matching contributions to IRAs and 401(k)s. They were least interested in learning more about increased automatic enrollments.